The USD/JPY is trading at the crossroad ahead of the NFP report. What I mean is that it has been in consolidation, and is trading around the middle of this consolidation, without any clear directional bias, though you can argue that there is always some bullish bias within consolidations simply because the prevailing trend is bullish and intact.
In the past 2-3 weeks, USD/JPY found resistance around 120.80. This week, the pair retreated down to 118.05 before rebounding. This rebound looks promising although a bit premature in signaling the bullish continuation scenario.
NFP Reaction; USD/JPY Outlook: Tomorrow’s (1/9) key fundamental factor will be the US Non-Farm Payroll Report. It is expected to show 241K jobs added in December, which is lower than the 321K reported for November. While this forecast is not gloomy, it is not impressive. Readings at least above 250K will be needed to impress these days.
120, Bullish Scenario: 120.00 is a critical level. It is a psychological level, and a support/resistance pivot. A break above 120 will also likely pull the 1H RSI clearly above 60, which would show loss of the prevailing bearish momentum.
Bullish Targets: This would put pressure on the 120.75-85 area, a break above which opens up the 2014-high of 121.84, with risk of continuing higher. So, after the NFP, if price can close the week above 120.00, we should be looking at a bullish attempt next week.
118.70, Bearish Scenario: However, if USD/JPY closes below 118.70 this week, it would reflect a failure of the NFP to give the USD another boost. Then it would be a JPY-story. This week, the yen is showing some resilience, which may be a result of risk aversion. If we risk is off next week, then USD/JPY will likely continue to be in bearish correction.
Bearish Targets: In the 4H chart, we can see a couple of bearish targets. First the 118-118.05 level, then a breakout projection towards 116.80-117. The 115.56 should be the most aggressive bearish target, since the prevailing trend is still bullish one, outside of the current short to medium-term bearish correction/consolidation.
Previous Post by Author: EUR/USD Free Falls as EUR/GBP Signals Bearish Continuation